Home Buyer Beware: The Pros and Cons of Different Property Types

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Arguably, now’s a great time to buy a home — at least when it comes to affordability. According to economists with the National Association of Realtors, the Housing Affordability Index, a measure of the relative affordability of purchasing a new home, is at the highest level since the index was created in 1971.

Let’s say you are considering it for all the right reasons (you want to own a home for the long-term, rather than buy a property you view as an investment, for example) and you are well qualified to buy a home in this market.

One of the first questions you should ask yourself is just what type of property to consider. A single-family home? A condo? A co-op? Or a townhome?

You may have your emotional preferences, but you should also know the pros and cons of each property type before you make a rational choice. Let’s review them one by one.

The Fixer Upper

First-time home buyers often find when they first start looking at homes that there is a difference between what they want and what they can afford. Buying a fixer-upper can often bridge that affordability gap because the market discounts properties that need work. First-time home buyers can, however, easily find themselves in over their heads if they’re not careful.


– Fixers can be found at a deep discount to properties that are in “move-in” condition.

– Fixers can be a good investment as cosmetic improvements can dramatically improve marketability.

– Ownership is fee-simple and you can do what you please with your land and exterior of the dwelling.


– The novice can easily miss serious and expensive repair items with a typical walk-through inspection.

– Minor repair items can develop into full-blown structural problems if not properly attended to after taking ownership.

– Major repair work can keep you from occupying the property immediately.

– Construction projects are almost always more expensive than you expect.

How to Protect Yourself

– Don’t overestimate your ability to do the repair work yourself.

– Pay for your own home inspection from an American Society of Home Inspectors (ASHI) certified inspector.

– Get contractor bids before you close so you know what you are up against.

– Create a project plan and budget for improving your fixer.

– Assess the livability of the property during needed repair work.


Condominiums have long been popular with first-time home buyers. In this form of ownership, you own the inside of your unit and have a percentage ownership of the land and common areas of the development.  You do not own or have the right to change the exterior of the unit.  Every condo project has its own homeowner’s association (HOA) that is responsible for maintenance of common areas and enforcement of HOA policies and restrictions.


– Affordability is generally much better than traditional single family house.

– Maintenance requirements are minimal.


– HOA fees can be significant and can rise when the HOA budget runs dry or when major repair work is needed.

– HOAs can be dysfunctional and poorly run.

– HOA rules can restrict your ability to rent out your unit.

– Can be more difficult to sell in a slow real estate market.

– Condos in projects that do not meet FHA or FNMA standards can be difficult to sell or even refinance.

How to Protect Yourself

– Be careful to review provisions of condominium by-laws and conditions, covenants and restrictions (CC&Rs) carefully.

– Due to project approval requirements, avoid condo projects that are anywhere near the following percentages: 30% of the units are non-owner occupied, 15% of the units are delinquent on HOA dues or 10% of the units are owned by one individual.

– Check to see if your project is FHA and/or FNMA approved.

– Review (or better yet, have an accountant review) the HOA budget carefully.

– Avoid any HOA where there is any hint of issues with construction defects.

Cooperative (Co-op)

A cooperative, also known as a co-op, is another form of ownership that is most common in certain areas of New York and New Jersey. Co-ops are similar to condominiums, but rather than owning a percentage of the land and improvements, you own shares of a corporation. As a shareholder you own the rights to use the air space within your unit and access common areas, but you do not own the walls or any portion of the building outright. Co-ops have a board of directors (BOD) that is responsible for maintenance and enforcement of policies.


– Affordability  is similar and sometimes better than condominiums.

– Maintenance requirements are minimal.

– Often provide security and, in some cases, concierge services.


– You and whoever you decide to sell the unit to will need to interview with and get the blessing of the board of directors; you (as a buyer) or the buyer of your property can be turned down for any reason or no particular reason at all.

– Co-ops can be more difficult to sell in a down market than other property types.

– Co-op maintenance fees can be very high, but generally include property taxes in addition to maintenance, security and, in some cases, utilities.

– Co-op policies can be restrictive and the BOD has the power to change policies at any time.

– Co-ops can restrict your ability to sublet or rent your property.

– Co-ops can be more difficult to finance as some lenders will not lend on this form of ownership.

How to Protect Yourself

– Review the co-op by-laws, policies and restrictions very carefully.

– Get to know the board of directors; if you’re not comfortable with them, they’re probably going to have an issue with you.

– Answer the interview questions of the board of directors as honestly as possible.

– Carefully review the budget.

– Plan for maintenance fee increases over time.

Planned Unit Development (PUD) Town home

Town home is a descriptive term for a dwelling that shares a common wall with other dwellings. Many town homes built these days are located in so-call planned unit developments, or PUDs. A PUD is a planned community that generally has common areas and roads maintained by an HOA. The HOA is also generally responsible for maintenance of the exterior of the units and insurance.


– Affordability is similar to condominiums.

– Lender project approval requirements are not as stringent as condominiums or co-ops.

– Maintenance requirements are minimal.

– HOA fees are generally lower than condominiums but do not include property taxes.


– Neighbors and privacy can be an issue.

– Typically have little outdoor yard space compared to detached dwellings.

– Can be more difficult to sell in a down market compared to detached dwellings.

How to Protect Yourself

– Review the PUD by-laws and restrictions carefully.

– Review the HOA budget to ensure the stability of the HOA.

– Ask other homeowners about how they like living in the PUD.

Ready to start looking for a home? Be sure to check your credit first. Credit Sesame offers you a free credit score and analyzes your credit health based on your Experian credit report.

Tony Wahl
A self-professed mortgage geek, Tony Wahl has more than 20 years of experience in the banking, personal finance and mortgage industries. Prior to joining Credit Sesame, Tony worked at JP Mortgage Chase, Mortgage Guaranty Insurance Corporation (MGIC), and Washington Mutual (now Chase), where he was responsible for developing, managing and optimizing large mortgage operations and underwriting team

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